BRT S03 EP08 (107) 2-20-2022 – Valuation of Cannabis Co’s w/ CPA Josephine Giordano

Business Roundtable

Feb 21 2022 • 55 mins

BRT S03 EP08 (107) 2-20-2022 –

Valuation of Cannabis Co’s w/ CPA Josephine Giordano

Things We Learned This Week

  • Risk Assessment in Cannabis industry and valuation as still federally illegal, and heavy cash business needing tight cash controls
  • Business Valuation approach of Discounted Cash Flow is used, with more adjustments because of less historical data
  • Cannabis License is the IP difficult to obtain, as Biz technically does not ‘own’ the license, but buys seats on a board, hence banks will not lend on the License
  • Cannabis Adjacent Business are doing very well (ie – Real Estate, Suppliers, Prof firms, banking), profiting off the growing industry, while not being hampered by as many regulations
  • Cannabis Industry may be Recession Proof as it thrived during the Pandemic

Guest: Josephine Giordano, CPA, ABV, CFF, CFE, CBA, ASA, CDBV, CIRA, CICA, CTP, CCCE
Director in the Financial Forensics and Business Valuation Services Group

National Cannabis Practice Leader



Josephine Giordano is a Director in the Financial Forensics and Valuation Services Group and National Cannabis Practice Leader at BeachFleischman PC. Ms. Giordano’s extensive experience includes the areas of internal audit, banking, regulatory compliance, fraud investigation, forensic accounting, public accounting/tax, business valuations, bankruptcy & restructuring, turnaround management, expert witness, court-appointed receiverships, and special master and compliance monitoring appointments. She also holds an MBA in corporate finance. She has been consulting and doing accounting for over 25 years, with the last five, working in Cannabis.


Adult use was legalized in 11/2020, and started ops 2/2021

Dept of Economic Research (AZ Dept of Rev)

$1.2 billion in sales thru 11/2021, Adult total sales $520 million

Medical (2021) - total sales $700 million; sales tax 459 million

Sales tax $44 million, Excise tax $93 million

2022 expectations to be bigger

Valuation of cannabis business  - new sector, does not have comparison data of 5+ years business sales.

Compare current industry numbers and do estimates, guesstimate – especially if business not profitable. Challenge to determine FMV (Fair Market Value)

Cannabis in AZ – buy board seats to control license, do not buy license

Large MSO – multi state operators  - example: CureLeaf.

Risk factors – Risk vs. ROI (Return On Investment)

Company specific risk- regulations, banking and tax laws in cannabis.

Tax risk – 280 E, cannabis is Fed. Illegal, so limited deductions, equals high federal tax, affects cash flow.

Regulatory risk – Federal government can shut down.

Apply risk component to income stream, higher risk will lower value

Income approach and DCF model, discount cash flow vs future sales projections.

If federal changes regulations and laws – then expense write off of tax, and other banking and legal expenses will be lower.

Risk – with staff and Keyman

Regardless of risk – MSO paying premium for access to license MSO knows risk and costs.

Valuation numbers do not entirely make sense-

CureLeaf deal late 2021, $12 million cash plus $1 million stock.

Earnings and EBITDA are standard metrics that cannabis does not use vs standard co. like industrial (plumbing, A/C)

Lending in cannabis deals – hard to get money, Cannabis could not PPP loans

Banking regulations – cash business and has risk with theft and fraud. Can only use state banks vs national like Chase or B of A.

Access to capital is tricky, how to get money to buy out partner.

Canadian market doesn’t have good comps or data, different accounting rules vs. US.

Banks want collateral, like real estate. Do not want to lend on license. Hard to determine the future earnings & cash. Private money will do lending with high interest rates of 10%.

Barriers to entry – need cash money to get into industry, lots of cash, but lots of sales potential

Legalization on Federal level – affects tax, banking, lending, expenses, cash flow.

Operators – have to be good at business, operations, finances.

Business Sale – due diligence, must be organized internally, especially financial info

Investors want to see good books and efficient operation

State regulators can strip or shut down a license for non-compliance.

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